Major Trends Impacting FMCG Industry (2017-2025)

Monday, December 4, 2017

---

Five main trends are identified that are both highly probable and likely to have large impact on industry profits:

1. At least one billion new middle-class consumers enter the markets
2. Rise of the digital consumer in both emerging and western markets
3. Shift to value and Companies’ challenge to meet
4. Impact of demographic shifts, including aging, on consumption patterns
5. Increasing supply chain volatility

 

Further other trends like green consumerism could combine with regulation to prompt CPG companies to reduce their impact on the waste stream by greatly reducing packaging. However, by the measure of profit margin, certain such trends will have less impact on global CPG value creation than the five major trends above. This may be exploited by smaller schemes in finding an open area to enter the market.

1. A billion new consumers enter the markets imposing the need of understanding these new consumers and meeting their needs (no simple matter for CPG players). Those who get it right stand to earn tremendous benefits. Success factors will include the selection of categories and markets—to ensure that the company builds a leading position everywhere it plays—as well as segmenting the vast population of new consumers innovating to meet their needs. Intensive consumer education is required to emphasize products’ benefits on the points where those consumers typically shop.
2. Rise of the digital consumer (the trade-off between expectations and reality). While technology has played a key role in the consumer goods industry’s growth, it will be truly disruptive in the coming decade. In figuring out how to win in this new digital world, CPG companies face some major strategic questions—including how to build a successful business through online retail channels, how to build brands and categories in a socially networked world, and how to exploit technology-driven opportunities to understand consumers more deeply and connect with them more often. To capture their share of this rapidly growing channel, CPG companies must raise their game with online retailers. They must work in close partnership with retailers to manage their online shelf space (including how prominently their products appear on Web listings), run joint targeted campaigns, and in general expand the category online. Regarding brand communication, today’s Consumers are more reliant than ever on referrals: 70 percent look to user reviews to inform their purchase decisions. Moreover, digital marketing is no longer just about one-way communications to consumers. User-generated content can be difficult to control, but it also offers one of the best ways to influence consumer opinion.However, manufacturers must weigh the trade-offs, and for many the economics of launching a branded e-commerce site will prove unfavorable. What if the Companies have no appropriate digital presence? They simply need to ally and outsource in order to stay close to their clientele. For those who decide against launching their own Web stores, the Outsourcing model for sales, merchandising and Ordering combined with in-store promo services may provide a competitive advantage of their effective presence in the large and small retail chains.
3. The shift to value.The global financial crisis has driven consumers to value offerings, and it is a trend that is likely to stick. Fifteen percent are "trading down" to cheaper brands during the recession, and almost half of consumers say their experience with cheaper brands, including private labels, has exceeded their expectations.The shift to value has major implications for the CPG industry’s profit formula. Not least, it could erode the pricing power of brands. Indeed, the facts uncover that private-label players are riding the value trend to become a serious force across CPG categories, accounting for more than 40 percent of supermarket sales in the United Kingdom, more than 30 percent in Germany, and more than 15 percent in the United States. CPG players are employing a variety of strategies to address this trend. Some companies are trying to minimize retailers’ need to launch their own private-label brands. For example, a major chocolate company reduced its pack size in the United Kingdom from 150 grams to 125 grams in order to keep the £1 ($1.60) pack price on the shelf, a key concern for retailers. Some companies are rationalizing their price lists to help retailers control SKU proliferation.
4. The impact of demographic shifts on consumption patterns. While consumer markets’ center of gravity will shift inexorably toward the developing world over the coming decade, there will also be profound demographic changes across all markets. In particular, the world’s population is aging quickly. By 2030, one in four Western Europeans will be elderly, as will one in five North Americans. Despite the global aging trend, pockets of younger consumers are growing in key markets.
5. Increasing supply chain volatility. We have considered four demand-side trends. Just as disruptive, however, will be one trend from the supply side: increasingly volatile input costs, driven by the emergence of bigger, fewer suppliers and natural-resource shortages.The impact of increasingly volatile input costs, is driven by natural-resource shortages that lead to the emergence of fewer, bigger suppliers encouraging smaller schemes to thrive.

 

Conclusion

The above five trends allows executives to assess the business impact of future market shaping up in a fact-based, quantified way so CPG companies can develop the strategies to seize those opportunities.

 

The go-to-market strategy and the subsequent Marketing mix to be applied by the CPG Companies should encompass the old and new, the mature and innovative in a consistent way. Pragmatic approaches lead to Outsourcing models and extroversion tactics that may contribute to sustainable development, capitalization of the existing consumers’ attitudes, as well as prepare the next steps to cope with consumers’ emerging behavior and growth challenges.